Boluarte’s struggle for legitimacy; protests in the south hit the economy
In this report, we focus on the repercussions of the recent public protests for the political landscape and the economy. We start by asking ourselves how new President Dina Boluarte can gain legitimacy in order to remain in power. While we argue that the government has all the resources necessary to lead a transition administration up to the elections of April 2024, there is significant pressure from the left, which has support from some neighboring Latin American governments. After this, we discuss the impact of the protests on the economy and inflation. We conclude that the protests have pushed the south of Peru into recession, and have become an inflation driver.
Boluarte is facing an uphill battle to gain legitimacy, and to retain her grip on power. Since she took over from Pedro Castillo on December 7th, when Castillo was ousted from the presidency for attempting a coup, Boluarte has had difficulty asserting her authority in the position. Castillo (while still in police custody) then accused Boluarte of plotting his ouster with the support of the right-wing parties in Congress, as well as with the police and Armed Forces, even though Castillo himself had initiated the coup attempt that led directly to his arrest. Castillo’s strategy appeared to be to present himself as a victim to provoke unrest, and to mobilize his supporters in the south and Andean regions.
It was apparent that whoever took over the presidency was going to face protests in the south. The December IEP poll indicated that, while 53% of the population disapproved of Castillo’s coup attempt, 44% approved. In addition, and as explained in previous reports, Castillo had organized his defense to appeal to the public, in case Congress decided to impeach him. It was, therefore, unsurprising that his support base took to the streets to protest his ouster.
The key questions now is: can Boluarte bolster her legitimacy and gain popular support after the 50 deaths that, at the time of this writing, had occurred during the protests? Alternately, will the left gain support on the back of these clashes, and be able to force Boluarte and President of Congress José Williams to resign, and call successfully for a general election and a referendum on a Constitutional Assembly? We believe that the accumulated political skill and experience on the left could prove a decisive advantage over the incumbents.
Against this convoluted political background, most recent high-frequency reports confirmed the resilience of the economy and real GDP growing in Q4 2022 1.6% oya and the full-year 2022 at 2.5% y/y, both in line with our forecasts. On the q/q, seasonally adjusted at annual rates measure, we estimate real GDP expanding 0.2% in Q4 2022 (after a contraction of 0.4% in Q3 2022) and 3.2% in H1 2022.
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